The UK’s small business sector faces new pressures in 2016 yet will still be expected to act as banker to large companies through late payment, cashflow pioneer Urica has said.

SMEs will have to grapple with pension auto-enrolment, the National Living Wage and tighter regulation this year, Urica’s chairman Lindsay Whitelaw says.

“Post-Christmas, they will be struggling for cash. Late payments are the real crime, they are now running at £50billion, and if SMEs had a mechanism to get paid when due a lot of their reliance on the banks would just disappear,” says small company fund manager Mr Whitelaw, who launched Urica in 2014. “SMEs are roughly 50 per cent of GDP but are finding it hard to get the lifebelt of cash that would allow them to grow. Without that it’s very hard to see the UK economy pushing ahead.”

Urica pays invoices submitted to selected companies by the suppliers they nominate within 14 days in return for a two per cent settlement discount, recovering the full invoice amount from the companies the suppliers work for after 60 days.

One of the four creators of Edinburgh fund house Artemis in 1998, Mr Whitelaw is still a partner. The founders sold two-thirds to ABM Amro in 2003, then with perfect timing triggered a change of control clause to sell their one-third stake to Belgian bank Fortis in late 2008 for £317m. They regained a minority stake and operational control in 2010, alongside US investor Affiliated Managers Group, at a sub-£250m valuation for the whole business.

Since then Artemis has powered ahead, reporting in October that profits for its 32 partners had more than doubled to £41m between 2012 and 2014 as assets rose by a third to top £20bn. It employs 45 in Edinburgh and 120 in London.

“I set it up because I believe passionately that Urica was the missing product into the sector at a time when it really needed some new thinking,” Mr Whitelaw says. “In many ways invoice discounting and factoring is 40 to 50 years old and it’s financial technology doesn’t really fit the needs of business – you can see that in its penetration of only 10 per cent in the UK. A lot of people use it and don’t like it and a huge number don’t use it.” Factors pay the supplier 70 to 75 per cent within weeks and has opaque pricing, Urica pays 98 per cent within days, Mr Whitelaw says. “We don’t charge you to come on to the platform and there are no maintenance fees.”

Big companies such as Tesco run a supply chain finance product, he adds. “But it only helps the top tier, we come in much lower down the chain.

“New ideas are needed but they have to be scalable and credible. There’s a whole plethora of alternative finance guys popping up, that’s fine and a few will grow, but the big challenge is how do you assess credit risk correctly? There will come a point in the cycle when it will be clear who is doing it right.”

Urica has formed a close relationship with Euler Hermes, an Allianz company and £500bn player in credit insurance. “They have only been doing it for 100 years,” smiles Mr Whitelaw. “Our IT system goes in and out of theirs every few minutes....which shows you the checks they must have done on us.”

He adds: “We are not interested in the credit risk of the small supplier, we have switched it round so we rely on the credit risk of the strong guy which means money can flow down to the small guys in the economy who haven’t got many alternatives.”

Launched with £10m from insurer RSA and £10m from the British Business Bank, the brainchild of the Edinburgh accountant and his co-founder Ian FitzHarris now needs more backing to realise their dream. They hope to attract pension funds and insurers on the strength of the Euler Hermes connection, which means 95per cent of Urica’s credit risk on its invoice pool can be offloaded to the credit insurance market.

In October Urica unveiled a partnership with the Engineering Industries Association, offering credit lines ranging from £50,000 to £2m to eligible companies. It will allow EIA members to pay their suppliers early, helping to boost growth in the industry and open up new trading opportunities.

“One of the attractive things about our model is that the customer doesn’t have to be in the UK,” Mr Whitelaw says. “We operate out of about 30 different countries, as long as we can get credit insurance for the customer. We have no defaults at all, everything is working as we thought it would.”

Urica has done no advertising but hoped to build slowly through reputation. “If you keep working away at it you aren’t having to bash down doors,” MrWhitelaw says, whilst admitting that it now “relies on being better known to have that impact”.

On his future Mr Whitelaw says: “I always viewed Artemis as a full-time role until it wasn’t, they have been very good in allowing me to go off and develop this, mainly because Artemis really understands the needs of the small business.”

He adds: “In terms of how big it can be, I think it can be very big. If it works in a small way there is absolutely no reason why it can’t in a big way. We have very good technology and we have the partnership with EH which is important and powerful. We will need to raise more money, because demand is very high.”